Ensure your trust avoids the whiff of financial impropriety

12th October 2018 at 00:00
Trusts must not only be squeaky clean, they must be perceived as squeaky clean, too, says Matthew Wolton

It goes without saying that the misuse of public funds is wrong. And if any member or a director of an academy trust, or a connected company or family member, has made a profit out of that trust, it should be dealt with as robustly as possible – and, at the very least, the money repaid to the trust.

But is this problem endemic in the academies sector? Almost all of the trusts I work with are schools-based MATs, meaning they were formed by the governing bodies of local authority schools coming together and forming a trust. No controlling individual or organisation is behind the trust. There are also no substantive contracts given to any organisation connected with its members or directors. In my experience this is the normal scenario.

The issue of related party transactions – business between the trust and a member/director/local governor – is complicated. The easiest thing would be to ban them outright, but this could end up costing schools money.

The people involved in governing schools are most often drawn from the local communities, and usually include businesspeople looking to “give something back” with their time or, sometimes, using their company.

I’ve come across situations where a builder has offered to do a job at cost, or below, for the school they’re connected with. Not only would this save the school money but it would have more confidence in the work, given the personal connection. The key here is transparency.

Academy trusts need to understand that it’s not enough to be purer than pure; they must be perceived as purer than pure, too. In the situation described above, if the trust goes with the local builder, it should recognise the risk of its being perceived negatively and ensure that is addressed head on.

The trust should publish the details online: for example, explain exactly what the project is, how it obtained three quotes from independent organisations and that the related party is doing it for X per cent less. The trust should explain that the related party was not involved in any of the decision-making, and that it will review the project post-completion and report on how it gave better value than if the trust had contracted with an independent builder.

What should help is that, from 1 April 2019, trusts will be required to report all related party transactions to the Department for Education and obtain prior approval before entering into any such contract worth over £20,000. We don’t know how this is going to work in practice, though, and I would encourage academy trusts to see this as part of the process, not the final word.

Matthew Wolton is a lawyer at Knights plc and is recognised for his academies expertise, having worked in the education sector for over 16 years. He works with large and small MATs around the country, providing strategic guidance as well as legal support

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